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The rise in the price of Bitcoin is strange, as its fundamental value is zero because it pays no income. So why is its price positive? There are two possible explanations: The first model – rational bubble – implies that it will end up returning to its fundamental value. The second model – chartists and fundamentalists – implies either fluctuations followed by a return to the fundamental value, or a continuous divergence in the asset’s price, as reported by Natixis.

See – Bitcoin: An opportunity that fiat money cannot buy – DBS Bank

Bitcoin’s price may rise permanently above its fundamental value (zero); it will then either return to it or diverge completely

“The presence of a rational bubble. The asset’s price will then end up returning to its fundamental value. When we look at the recent trend in the price of Bitcoin, this implies a probability of the bubble each month bursting in the next month of 60%.”  

“The fact that there are both chartist investors (who extrapolate trends) and fundamentalist investors (who believe that the price of Bitcoin will return to its fundamental value of zero) in the market, the proportions of which depend on the performance of their respective approaches. This leads to potentially extreme fluctuations in the asset’s price; there may even be divergence. We simulate this model to look at the price dynamics that it results in.”

 

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